What is the purpose of liability insurance?

Liability insurance serves a critical role by providing financial protection against claims resulting from injuries or damages that the insured may cause to third parties. This type of insurance is designed to cover legal costs, medical bills, and damages awarded in civil lawsuits, thereby safeguarding the policyholder’s assets and financial stability in case they are held responsible for an accident or incident.

For instance, if a policyholder causes an accident that injures another person or damages someone else's property, liability insurance would help cover the expenses associated with these claims. This is vital for individuals and businesses alike, as the financial implications of such claims can be substantial and potentially devastating.

Other options typically focus on more specific areas of coverage. For example, covering vehicle damages refers to comprehensive or collision coverage rather than liability. Guaranteeing payment for all medical expenses is characteristic of health insurance or medical payments coverage, and offering coverage only for property damages neglects the broader scope of liability insurance, which encompasses both bodily injury and property damage claims. Therefore, liability insurance is fundamental for providing a safety net against a wide range of potential legal and financial liabilities.